February’s bond rally fades as 10-year yield jumps 100 basis points

Uganda’s treasury bond market delivered a complicated verdict at the Bank of Uganda‘s April auction, with yields rising across all three tenors from their February lows while an extraordinary surge in demand for 10-year paper exposed a widening gap between what investors want and what the government is prepared to pay.

The auction, held on 15 April, reopened the same 3-year, 10-year, and 20-year bonds as February’s sale. The government offered Shs990bn in total, unchanged from the previous auction, but the similarities largely ended there. Bid-to-cover ratios, demand patterns, and the BoU’s own acceptance decisions told a more nuanced story than the headline yields suggested.

The three-year bond cleared at a yield of 13.4 per cent, up marginally from 13.3 per cent in February. Investors paid Shs108.2 per 100 of face value, still a substantial premium and still well below the bond’s 15.5 per cent coupon. Bid-to-cover fell to 1.7 from 2.7, a meaningful cooling of demand at the short end. The BoU accepted Shs331.8bn, more than the Shs230bn on offer, suggesting it was content to raise additional funds at the prevailing yield.

The 20-year bond told a similar story. Demand softened, with a bid-to-cover of 1.6 against February’s 2.5. The yield rose to 16 per cent from 15.5 per cent, and the clearing price slipped to Shs97.6 per 100, deeper into discount territory, reflecting the additional uncertainty investors attach to locking in capital for nearly two decades. The BoU again accepted above the offered amount, taking in Shs647.8bn against the Shs430bn on offer.

It was the ten-year bond that produced the most striking figures. Investors tendered Shs354.8bn against the Shs330bn on offer — a bid-to-cover ratio of 6.535, by far the highest of the three tenors and one of the more remarkable readings in recent auction history. Yet the BoU accepted only Shs54.3bn, an acceptance rate of barely 15 per cent. The clearing yield rose to 15.5 per cent from February’s 14.5 per cent — a full 100 basis points in two months — but evidently not by enough to clear the bulk of bids at terms the government found acceptable.

The implication is clear: investors were willing to lend at ten years, and in volume, but only at yields meaningfully above what the BoU was prepared to accept. The central bank’s decision to reject roughly six shillings in every seven tendered on that paper amounts to a quiet but firm statement about where it believes the ten-year rate should sit. Whether the market accepts that view at the next auction will be telling.

Placed against the longer arc of Uganda’s bond market, the April readings are elevated but not alarming. The ten-year yield of 15.5 per cent sits comfortably below the 17 per cent recorded in January 2025 and the 17.5 per cent peak reached during the May 2025 supply wave — the highest level since the turbulent 2015-16 period, when a sharp depreciation in the shilling pushed borrowing costs sharply higher across the curve. February’s 14.5 per cent was, in retrospect, something of an outlier; a compression that the April results have partially unwound.

The broader interest rate environment provides useful context. The BoU has held its Central Bank Rate at 9.75 per cent since October 2024, a level that has remained unchanged through the recent bond market volatility. The 364-day treasury bill yield, meanwhile, stood at 10.9 per cent in March 2026, down from peaks above 15 per cent in mid-2025, suggesting that the easing in short-term rates has not been fully matched at the longer end; a flattening, or in some tenors a steepening, of the yield curve that warrants attention from fixed-income investors.

For the government, the April results are a qualified setback after February’s encouraging auction. The BoU raised its target amounts on the three-year and 20-year tenors by accepting above the offered amounts, which partially offsets the constrained ten-year take-up.

But the message from the rejection of the ten-year bond is that the February yields, which seemed to indicate a sustained reduction in borrowing costs, may have moved faster than the market’s underlying appetite could support. The next auction will reveal whether April’s partial reversal is a temporary correction or the beginning of a more permanent repricing.

All figures from the Bank of Uganda Central Securities Depository. Historical yield data covers bond auctions from January 2004 to April 2026.